HL Economics

BA vrs. Ryanair

a.) Elasticity is how much the quantity demand is affected by price. The European Air travel is a curved line where higher prices are inelastic and lower prices are elastic.

b.) BA has focused on the inelastic higher prices, raising the price to increase revenue with little decrease in demand. Ryan air, on the other hand, is working with the elastic end of the graph, choosing to decrease price to find a huge increase in the quantity demand, increasing revenue. By working with elastic prices and with budget-minded consumers, the increase in the quantity demanded for the little decrease in price showed a major increase in revenue, allowing Ryan air to become the most profitable airline. The high quantity demand for low prices allows Ryan air to be able to sell cheap flights, as the sheer amount of demand makes up for the lack of profit and results in increased revenue. Ryan air also uses a small labor force and cuts down on the etras of airlines, such as peanuts.

c.) By using marginal costs, Ryan air is able to sell the first seats at higher prices and the final seats at lower prices, allowing them to fill the last few seats at under 10 pounds.

Ryan air’s use of elastic demand has allowed them to be the most profitable airline, while BA’s use for inelastic demand has caused them to struggle. If BA decreased it’s costs by not giving free food and decreasing the number of flight attendants. They could also use marginal costs to increase the number of seats per flights and therefore increasing profit. a.) Elasticity is how much the quantity demand is affected by price. The European Air travel is a curved line where higher prices are inelastic and lower prices are elastic.